The Reserve Bank of India tightens rules on securities brokers' loans, stepping up measures to curb market speculation.

The Reserve Bank of India has tightened the loan rules for institutions engaged in stock and commodity proprietary trading and providing leverage to clients, the latest move by Indian regulators to curb speculative market activities. According to an announcement posted on the RBI website last Friday, all credit provided to securities brokers must be collateralized, and loans provided to brokers for proprietary trading or investments are prohibited. The central bank stated that this prudent regulatory rule for capital market intermediaries like stock and commodity brokers will take effect on April 1. The stricter measures will increase the cost of funding for proprietary trading institutions and squeeze their profit margins. Although Indian banks traditionally do not directly finance proprietary trading, the new directive closes a loophole where short-term working capital loans provided by banks cannot be misused by brokers for trading. Citigroup analysts Dipanjan Ghosh and Kunal Shah wrote in a report that institutions involved in capital market trading, such as brokers, clearing members, and exchanges, may be affected. They stated that the proposal could increase capital requirements for brokers and professional clearing members, but it is currently difficult to assess the specific impact. Data shows that proprietary trading institutions accounted for over 50% of stock options trading at the National Stock Exchange of India last year. In cash stock trading, the share of such institutions has risen to around 30%, reaching a 21-year high. India also recently announced plans to significantly increase stock derivative trading taxes, with market participants analyzing that high-frequency trading profits will be affected.